Recognising the innovation fintech companies are bringing in to the moribund banking experience, market regulator Sebi and insurance regulator IRDAI too have announced initiatives to encourage startups in their segments by making data and systems available to them.
This will only strengthen RBI efforts which had last month announced a regulatory sandbox where startups could test new financial products in real time with limited regulations.
A sandbox is an enabling infrastructure or interface, which is made available to an outside innovator or fintech by a bank so that they can test their product and services in real time. This live testing reduces the time to go to the market and also allows a room for failure without actually going for a commercial launch.
By providing for sandbox in insurance, IRDAI said fintechs will have a safe and conducive space to experiment and where the consequences of failure can be contained.
A report in ET points out that based on the solutions fintechs come up with, IRDAI could also look at relaxing some of the regulations to accommodate innovations without compromising the interests of a policy holder.
Similarly, Sebi’s sandbox enables offline testing of solutions developed by fintech companies away from the ups and downs of the live market.
An important component of this sandbox for the securities market is access to data, which will help users to test and improve their fintech solutions. This could include depositories’ data relating to holdings, KYC, transactions information like sell and put positions.
The facility can only be made available to the applicants if they prove that the solution cannot be deployed without testing in a safe environment.
But for IRDAI sandbox, the applicant should have a net worth of Rs 10 lakh and a proven financial record of at least one year.
Testing in a safe environment offered by regulators could also enable fintech companies to raise funds easily. As it is, fintech and financial services continue to find favour with venture capital funds. In the first three months of the year alone, they have closed 32 deals worth $679 million.